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Clouds Defined

cloud in the sunlightSome time ago we sent out a survey asking about your perceptions of SaaS, Cloud computing, and Hosted solutions. Of course we were interested in EDI solutions, but the question is a generic one that applies to any application. The responses we received ranged from fairly detailed explanations of each, to "I don't know what these are." So for those who are unfamiliar with the differences, here is a primmer on the major differences and some discussion of the advantages of each. This falls far short of a full detailed explanation, but the basic concepts are accurate.


These are generally accepted definitions of the three types of services. That said, there is always some room for variance and exception based on the provider and the application. We are interested in your experience with these services, so please comment if you have something to add.

Technical Traits

SaaS - Software as a Service

SaaS has been around for several years, and its most often cited example is

  • The application is installed on a system that is accessible via the Internet.
  • Generally Multi-tenant, meaning that each account exists as a segment of the system's database rather than as a separate database in itself. Some systems may have discrete instances of identical databases.
  • Setup is quick,  typically only a matter of creating an account ID.
  • There is generally only one instance of the software. This means that updates to the application affect all users at the same time.
  • Customization is done by turning features on and off for each account rather than modifying the program separately for each account. This may limit the ability to customize the system for any particular customer.
  • The computers hosting the application are usually located in a data center.
  • These systems are infinitely scalable.

Cloud computing

Cloud platforms are relatively newer than SaaS systems, and they are not entirely the same. Clouds are computing resources (computer CPUs, disk drives, database engines) linked together via network connections. They may or may not be in the same location, and the users may never know the exact location of their data.

  • Charges are based on usage of the resource during the billing period. Prices are generally set per gigabyte of storage, per gigabyte of data transfer, and per CPU cycles.
  • The number of computers assigned to an account can fluctuate instantly on demand, and can vary from a minimum number of CPUs to thousands, then return to the minimum once the calculation or resource request is completed.
  • The system is a resource similar to the computers in a data center, but managed by the Cloud provider.
  • Differs from a SaaS solution in that Clouds are not typically tied to a specific application, just as a server is able to host any compatible application required.
  • Access is made via an Internet connection, but the cloud service provider routes the requests as it determines to best service the needs and conditions of the service agreement. The actual computing devices may be located anywhere on the globe.

Hosted Systems

Hosted systems are typically single instance applications. They are likely to be the same applications that would be installed on computers within the enterprise.

  • Each hosted application is a discrete instance of the software.
  • A hosted application is generally identical to having the application installed within the firewalls of the enterprise, except that the computer is located at the service provider's facility, and accessed via an Internet or dedicated network connection.
  • Hosted applications are not scalable in the same way that SaaS and Clouds are scalable. Increasing capacity requires much the same effort as it would if the application were installed within the company's location.
  • Software updates are performed for each installation. This means that if there are 1,000 customers, each of the 1,000 computers must be individually updated.

Business Traits


  • Low cost of entry.
  • No real 'installation' or systems installed locally.
  • Short term commitments - subscriptions are generally by the month.


  • Low cost of entry.
  • Short term contracts based on actual use of the resources.
  • Requires little planning with regard to capacity requirements because additional resources are available when required.

Hosted Systems

  • Contracts are generally long term and include the purchase of the software license, rental of equipment, networking capacity, and support services.
  • Implementation times are similar to in-house hosted systems.
  • Customization for individual customers is possible, but may limit the ability to apply standard updates.

According to your responses to our survey, the majority of readers' organizations are using a combination of services, with the most prevalent type being the traditional in-house software installation. This chart shows (not surprisingly) that more than 80% use locally installed systems, with about 1/3 using hosted services. SaaS and Cloud services nearly tie with around 25% of responses indicating they use them.


There are certainly more specific traits to each, and each organization needs to make its own evaluation regarding which type service works best for its business situation. Have an opinion? Let us know.

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Scott Koegler

Scott Koegler is Executive Editor for PMG360. He is a technology writer and editor with 20+ years experience delivering high value content to readers and publishers. 

Find his portfolio here and his personal bio here